Dalian Wanda Digs Its Way Out Of Rubble Of Failed Property Management IPO

Key Takeaways:

• Dalian Wanda is negotiating with a series of investors who are owed repayments after its commercial property management unit failed to list by an agreed deadline
• One of the investors, Country Garden Services and its parent, Country Garden Holdings, withdrew their investments to focus on their core business

By Lau Chi Hang

His name isn’t a household word, but Wang Jianlin was once a kingpin of China’s property market in its heyday. Now, it seems, he’s become a shadow of his former self with the plunge of a market that once made him one of China’s richest men.

His powerlessness, and subsequent reliance on the goodwill of others, has been on quiet display this year in the unfolding saga of his attempts to placate a group that once hoped to make big returns by investing in his Zhuhai Wanda Commercial Management Group.

Zhuhai Wanda originally planned to raise up to HK$30 billion ($3.86 billion) in a Hong Kong listing before the plan crumbled with the tanking of China real estate market. But time doesn’t wait, and pre-IPO investors in Zhuhai Wanda began clamoring for repayment. They said Zhuhai Wanda’s parent, Dalian Wanda, had to honor its commitment to buy back their shares, or offer other compensation, for failing to complete the IPO by an agreed deadline.

As China’s largest commercial property manager, Zhuhai Wanda’s business portfolio runs the range from commercial management to related value-added services. As of November 2023, the company was operating and managing 494 large-scale commercial centers, of which 290 are owned by Dalian Wanda and 204 were for other third parties.

The planned IPO was part of a broader trend for Chinese developers to spin off and separately list their property management arms, partly to raise cash and partly to better value their different business models. But then the market, which had been booming for years, suddenly began to sag, derailing Zhuhai Wanda’s IPO.

Zhuhai Wanda recorded after-tax profits of 9.57 billion yuan in 2022 and 7.53 billion yuan in 2023, and had net asset worth 9.45 billion yuan at the end of June.

Country Garden Pulls Out

Following the collapse of the Zhuhai Wanda IPO, Dalian Wanda recently agreed to repurchase nearly 108 million Zhuhai Wanda shares from Country Garden Services (6098.HK) for 3.14 billion yuan, accounting for 1.49% of Zhuhai Wanda’s total share capital. In addition to returning what Country Garden Services paid, the price also included an 8% annualized rate of return after tax. Following the deal, Country Garden Services still holds 0.31% of Zhuhai Wanda.

As early as mid-December last year, Country Garden Services’ parent, Country Garden Holdings (2007.HK) also sold 1.79% of its Zhuhai Wanda stock to Dalian Wanda in a similar deal for 3.07 billion yuan. Thus, the sale by Country Garden Services just represents the latest unwinding of the Zhuhai Wanda investments for an IPO that never happened.

Zhuhai Wanda’s IPO story dates back to 2021, when Dalian Wanda’s well-connected Chairman and sometimes karaoke crooner Wang Jianlin brought in 22 investors who contributed a combined 38 billion yuan to boost the listing. That group was an A-list of corporate China, including not only Country Garden but also Citic Capital, Ant Group and the Zhuhai State-owned Assets Supervision and Administration Commission (Sasac). The largest investor was regional private equity giant PAG, which bet 18 billion yuan.

According to their agreement at the time, investors had the right to ask Dalian Wanda to buy back their shares, plus an 8% annual return on their investment, if Wang Jianlin failed to list Zhuhai Wanda by 2023.

The cruel reality that followed was that Zhuhai Wanda failed not once, but four times, in Wang’s attempts to take the company public in Hong Kong since 2021. With the listing deadline now expired, Dalian Wanda would have come under considerable pressure if its investors all demanded their money back. Fortunately for Wang, PAG and some of the others, after more negotiations, agreed to a deal that included their reinvestment in Zhuhai Wanda and the introduction of new investors.

Lifeline Investment

Brought in by PAG, companies providing new investment included the Abu Dhabi Investment Authority’s Platinum Peony, Mubadala Investment Co., Citic Capital and Ares Management, which contributed a combined 60 billion yuan in new funds to Zhuhai Wanda. As part of the deal Dalian Wanda’s stake was reduced to just 40% of Zhuhai Wanda, taking away its control of the company, as PAG and the other investors took over the rest.

But not every investor was willing to keep betting like PAG. The two Country Gardens withdrew their investments, as Country Garden Holdings struggles under a crushing mountain of debt. One of the other major investors, Zhuhai Sasac, has yet to declare whether it will demand that Dalian Wanda buy back its 3 billion yuan stake in Zhuhai Wanda.

Observers believe those two parties might have reached a deal, given that Dalian Wanda will soon relocate the headquarters of its commercial property management company and 500 employees from Beijing to Zhuhai. Specifically, Dalian Wanda has agreed to move its commercial property management business into Zhuhai’s Hengqin district, a newly developed area of the city where many office buildings still have high vacancy rates.

Besides the two Country Gardens and the Zhuhai government, word has yet to emerge of other investors requesting refunds for their Zhuhai Wanda shares. But the strong support from PAG is leading many to believe that Dalian Wanda will have the resources to handle additional repayment requests if any come.

Investors such as PAG have not disclosed details of their reinvestment, and no timetable has been given for any potential new listing attempt by Zhuhai Wanda. But with China’s residential and commercial property markets both in a sorry state with no signs of improvement on the horizon, a new listing bid seems unlikely anytime soon.

This article is from an unpaid external contributor. It does not represent Benzinga's reporting and has not been edited for content or accuracy.